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Corporate tax avoidance

January 7, 2013

Mark made the following contribution to a debate on corporate tax avoidance:

Mark Field (Cities of London and Westminster) (Con): I congratulate the hon. Member for Redcar (Ian Swales) on initiating this very important debate, although I must confess that I did not agree with everything he said. I am rather concerned by the strongly anti-business approach to this issue shown by certain Members.

I have a great deal of sympathy for the leaders of all the political parties in formulating what would be regarded as an adequate response to the hot potato of corporate tax avoidance. In today’s 24/7 media world, there is a constant demand on political figures to provide a running commentary on populist media campaigns following the high-profile cases to which the hon. Gentleman referred, including global businesses such as Google, Amazon and Starbucks.

I can fully understand the temptation to brand this as a moral issue, appealing to corporates’ consciences when the legislative framework has failed, but it is a temptation that we in politics should try to avoid. In sparking a debate on morality in relation to the payment of tax, I fear that elite politicians open up a dangerous flank, because it suggests that the Government are either impotent or are being disingenuous in their outrage. That applies to Governments of all colours. After all, Parliament must ultimately set the rules within which companies operate. As my hon. Friend the Member for South Norfolk (Mr Bacon) said, the precedent that has now been set, with Starbucks paying an amount of tax that it alone has determined sufficient publicly to salve its conscience, is a very odd one.

I am very concerned about the whole idea of mob rule. I am sorry that the right hon. Member for Birkenhead (Mr Field) is not in his place. He speaks eloquently about issues such as immigration, and he would be unwise to think that mob rule is a way of dealing with immigration problems, for example. We must recognise that we are a democracy and that this is the forum within which the rules should be made. We should not try to inspire mob rule, whether on the payment of tax or for any other purposes within our society.

I have lost count of the number of times that media commentators have remarked that they would be delighted to apply the same approach to their own tax affairs by paying what they feel like rather than what the Government demand of them. However, I have a much wider concern—that investors will begin to sense that UK policy on tax and regulation is becoming ever more arbitrary, governed more by sentiment and the news cycle than by the strict rules that should be enforced by HMRC and ultimately by the courts. The UK should be proud of its traditional place as a bastion of commercial certainty attracting investment from every corner of the globe, and, as my hon. Friend the Member for Lincoln (Karl McCartney) pointed out, that will be undermined by high-profile rows such as this.

That is not to say that all is well. As we saw in my own constituency with the protest outside St Paul’s cathedral only a year or so ago, there is deep-seated concern that the rules of capitalism are being skewed. None of us should take this issue lightly, not least—dare I say it?—Conservative Members, as middle-class Tory voters often feel most strongly about it. To focus on arbitrary media campaigns or to invoke mob rule, as several Members have, is entirely the wrong way forward.

Too often, as my hon. Friend the Member for South Norfolk said, coalition Ministers have conflated the concepts of avoidance and evasion in debating taxation policy. The ideal solution is for aggressive tax avoidance schemes to be stopped in their tracks before they are marketed. That requires constant dialogue and the re-establishment of trust between HMRC and tax intermediaries. As a matter of urgency, therefore, the Treasury needs to promote a much better and more extensive pre-clearance regime to allow companies, individuals and tax advisers to road-test their proposed schemes. HMRC must start investing more time in developing and managing relationships with accountants and tax lawyers.

Meanwhile, the Treasury is committed at the time of the next Finance Bill to introducing general tax anti-avoidance provisions. It is clear that any such general power of anti-avoidance will feature some retrospective taxation. That is wrong in a free society, and it will risk further damaging our nation’s reputation as a free, open and transparent place to set up, develop and run businesses.

Ian Swales: I hope that the hon. Gentleman did not interpret my remarks as being anti-business. Does he not worry about the competitive situation if certain companies get away with these practices and are then competing with other companies that do not have the ability to do so?

Mark Field: I do. Andy Street, the managing director of John Lewis, has made that point, but it obviously applies to many of the smaller independent companies. I represent a central London seat where a lot of big businesses are based and operate. Nothing is more important than encouraging independents, whether they are restaurants, wine bars or book shops, rather than just relying on big multinationals. No one wants to see all our high streets entirely dominated by large international corporations, many of which may involve themselves in what is currently regarded as aggressive tax avoidance.

John Pugh: The hon. Gentleman said that retrospective taxation is a threat. Does not the previous Government’s pre-approval scheme, which puts proposals through the Treasury to find out whether they are sound, get round that and remove that fear?

Mark Field: Not entirely, because it does not work as well as it should. There is no doubt that this is going to be a much more high-profile issue, and I will be interested to hear what the Minister has to say about my suggestion.

The underlying lesson is that the UK tax code and regime remains far too complicated. The godfather of tax avoidance is complexity and uncertainty in the system. When even tax experts find it impossible to understand the workings of the tax code, people begin to question whether everyone is really paying their fair share. This, in turn, creates a sense of greater acceptability in the avoiding and evading of tax. Furthermore, a complicated and opaque tax system will always be vulnerable to misrepresentation, particularly by the media, and that again weakens confidence and encourages further avoidance. People think, “If Amazon can get away with not paying its fair share, why should I bother to stump up?” I can understand why that is a general sentiment, but it frustrates many of the corporates that, as the hon. Member for Redcar said, have paid in an open and transparent manner and will ultimately undermine their whole business framework.

Government can make piecemeal efforts to address particular instances of avoidance—they can play catch-up to a certain extent—but responses tend to involve making the entire system far more complex, thereby reinforcing the very factors that have driven avoidance in the first place, displacing the activity and giving rise to a whole set of new avoidance techniques. Instead, the Government need to take an entirely different and fresh approach. They should look at how they can overhaul the entire system so that avoidance and evasion offer a similar, smaller reward and will therefore be seen as far less acceptable. Fundamentally, that can mean only lower taxes and a radically simplified tax code. For example, a single income tax applicable to income, however it is received, at the same single rate is the best way of stripping out of the system any incentive to avoid income tax. A simpler tax code would also free up HMRC resources to concentrate on tackling the real problem of tax evasion while making transgressions easier to identify.

It has been a pleasure to make a brief contribution to this debate on an important issue to which we must all return. However, I am concerned that too much of the rhetoric coming from this place almost suggests a sense of powerlessness that gives rise to the view that there is an aggressive anti-business approach in this country. We do need to have a thriving business sector. Global businesses can, of course, choose where they locate their business. We should be proud in this country of having a track record of being open to business, but I also accept that we want to ensure that businesses pay their fair share, because we have a huge deficit and a huge debt that has to be paid off if we are not to burden future generations.

I hope that we will look at the whole issue with that in mind, but above all I hope that the Minister will take on board the idea that HMRC needs to have an approach that is much more open to the pre-clearance I referred to. We must also, as a matter of urgency, look at the complications in our tax code that are allowing some of the high-profile avoidance to take place.